Question: You are evaluating three different machines. Machine A costs 1 lakh to purchase and 10000 per year in maintenance costs. Its life is 10 years.

You are evaluating three different machines. Machine A costs 1 lakh to purchase and 10000 per year in maintenance costs. Its life is 10 years. Machine B costs 1.2 lakhs to purchase and 11,000 per year in maintenance costs. Its life is 14 years. Machine C costs 1.5 lakhs and 11,500 per year in maintenance costs. Its life is 18 years. Assuming that WACC is 10% and that you need these machines forever (you will repurchase the same machine when it breaks down), what is the effective annual cost for the cheapest machine?

Options are

26673 for Machine C

24289 for Machine C

26275 for Machine A

22458 for Machine B

Second question is

The P/E ratio of five automobile companies is 18, 18.6, 19, 19.4 and 20. You are trying to estimate an expected price for Maruti, an automobile company. If the Earnings Per Share (EPS) for Maruti is 125, what is the expected price per share for Maruti using relative valuation?

Options are

2375

2565

2470

2660

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